The impact of manufacturer rebates on supply chain profits

Abstract

Manufacturer rebates are commonly used as price discount tools for attracting end customers. In this study, we consider a two-stage supply chain with a manufacturer and a retailer, where a single seasonal product faces uncertain and price-sensitive demand. We characterize the impact of a manufacturer rebate on the expected profits of both the manufacturer and the retailer. We show that unless all of the customers claim the rebate, the rebate always benefits the manufacturer. Our results thus imply that "mail-in rebates," where some customers end up not claiming the rebate, particularly when the size of the rebate is relatively small, always benefit the manufacturer. On the other hand, an "instant rebate," such as the one offered in the automotive industry where every customer redeems the rebate on the spot when he/she purchases a car, does not necessarily benefit the manufacturer. © 2007 Wiley Periodicals, Inc.